US Fed Chair Bernanke mounts strong defence of QE policy
The US Federal Reserve Chair disagreed publicly with IMF Chief Christine Lagarde on the impact of Fed's policy of quantitative easing.
The usually calm US Federal Reserve Chair Ben Bernanke made a passionate defence of the US Central Bank's policy to stimulate the American economy through quantitative easing (QE) – in other words by printing money.
Christine Lagarde, the Managing Director of the International Monetary Fund, speaking at an event in Tokyo, argued that the QE programmes in developed economies could lead to "volatile" currency flow in the economy.
"This could strain the capacity of these economies to absorb the potentially large flows and could lead to overheating, asset price bubbles, and the build-up of financial imbalances," she said.
However, Bernanke was dismissive of this argument. Speaking at the same event, he went on to claim that there is little eveidence "accommodative policies in advanced economies impose net costs on emerging market economies".
Recently, the US Federal Reserve had announced that it would continue with its policy of low interest rates while at the same time stimulate the economy by purchasing $40 billion of mortgage-backed securities per month indefinitely until there is significant drop in US unemployment numbers.
Many in the developing world have called the Federal Reserve's policies to be "selfish" but Mr. Bernanke disagrees. “This policy not only helps strengthen the U.S. economic recovery, but by boosting U.S. spending and growth, it has the effect of helping support the global economy as well,” Mr Bernanke said.
But the Brazilian Finance Minister Guido Mantega told the IMF's governing board that the US central bank's policy is hurting developing economies. “Advanced countries cannot count on exporting their way out of the crisis at the expense of emerging market economies,” he said as he warned Braxil will take necessary steps to ensure its economy is stable.
Bernanke, however, had a tough message for developing economies. His primary target was China but all other "BRICS" nations could fall within that category.
"In some emerging markets, policymakers have chosen to systematically resist currency appreciation as a means of promoting exports and domestic growth. However, the perceived benefits of currency management inevitably come with costs, including reduced monetary independence and the consequent susceptibility to imported inflation," he said.
"In other words, the perceived advantages of undervaluation and the problem of unwanted capital inflows must be understood as a package–you can’t have one without the other."